and elsewhere in the country....
Two out of three Bay Area home buyers are choosing interest-only loans, and some experts warn that the popularity of the controversial form of mortgage debt is a sign that the overheated housing market is boiling over.
These loans, which allow borrowers to avoid paying any principal for three years or more, have grown explosively in recent years to become the favored mortgage for buyers in the region, replacing the standby 30-year mortgage preferred a generation ago.
They accounted for nearly 70 percent of home purchases in the first two months of the year in San Francisco, Marin and San Mateo counties, up from 18 percent in 2002 and 59 percent in 2004, according to data compiled for The Chronicle by San Francisco mortgage research firm LoanPerformance, a unit of title giant First American Corp.
sfgate
....Interest-only loans can come back to bite borrowers, and not only because borrowers have to start paying principal after the initial period, increasing their monthly payment burden. Payments also can jump if interest rates rise during the interest-only period. Most loans carry a cap over which the rate cannot rise. But a higher rate of even one or two percentage points can still translate into a sizable payment increase.